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TMI Blog2025 (4) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, the case was selected for complete scrutiny. Specific issue to examine was large value of cash deposited during demonetisation. Mandatory notices including a summon was also issued u/s 131 of the Act. The ld. AO examined that during the year under consideration, the assessee firm is engaged in both trading and manufacturing packing and dispatch of chewing tobacco from its manufacturing unit in Delhi at D-33 SMA Industrial Area, GT Karnal Raod and trading of chewing tobacco and perfumery products at its 7/355, Naya Bans New Delhi unit. Ld. AO examined, during the year under consideration, between 09.11.2016 and 31.12.2016, the assessee deposited Rs 83,50,990/- in one bank account and Rs 7,69,86,751/- in another bank account. Ld. AO issued notice u/s 142(1) of Act, and the assessee was asked to explain the source of these cash deposits. In response to the same, the assessee submitted that the main source of cash deposits is cash sale. Further ld. AO called information with respect to cash deposit pattern and cash sale for FY 2016-17. Information was also called for with respect to FY 15-16 and FY 17- 18 to ascertain the business pattern of the assessee. Then in order to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.49 2,04,61,113.14 5,30,24,089.15 Turnover Trading Turnover 17,70,98,823.46 39,67,24,743.51 40,61,27,922.63 Total Turnover 22,20,89,816.95 41,71,85,856.65 45,91,52,011.78 Manufacturing Gross Profit 56.66% 46.28% 40.76% Trading Gross Profit 18.61% 19.00% 13.86% Total Gross Profit 26.32% 20.51% 16.8% Manufacturing Net Profit 15.60% -42.13% -13.71% Trading Net Profit 16.57% 17.80% 12.94% Total Net Profit 16.35% 13.90% 9.50% 6. Accordingly ld. AO concluded that the turnover of the assessee is largely trading based. He further concluded that from FY 2015-16 to FY 2016-17, manufacturing as a percentage of turnover has gone down from 20.25% to around 5%. The trading turnover percentage has gone up from 79.75% in FY 2015-16 to 95.09% in FY 2016- 17. 7. The response of the assessee explaining this changing composition of business was that while the turnover was registering a robust growth, the sale of tobacco was falling day by day. Therefore, the assessee firm started the business of trading perfumes from their showroom in 7/355 Naya Bans. The assessee submitted that during the previous two years, the growth in turnover is being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 8 days of November was Rs 16,74,072. Even in FY 17-18, the entire cash sale in November 2017 is Rs 4,91,96,212. This implies that the proportionate sale for the first 8 days of November works out to Rs 1,31,18,989/-. * Therefore, the cash sale in the first 8 days of November in FY 2016-17 is disproportionate. It is out of trend in comparison to the previous year and the subsequent year. * It is also out of trend compared to the sales of FY 2016-17, if the average sale of first 8 days of each month is taken into account. To explain this unusual jump in cash sale in the first 8 days of November 2016, the assessee was issued the show cause on 25.12.2019 as to why the books of accounts should not rejected. The assessee's submissions were considered and were found not acceptable because the assessee's cash sales were not found to stand the test of human probability and the ld. AO alleged as follows; * * Even though the business of the assessee is cash sale based, the unprecedented cash sale in the first 8 days of November 2016. * The sale in the first 8 days of November 2016 is more than the entire sale in October 2016. 10. In this context the ld. AO observed as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ink the customer base/sale frequency. * On a similar line, the perfumery products will not see a huge spike owing to the aforementioned reasons. The very nature of retail transactions of a product of special nature will not see a significant change in sales unless there is no product or territorial diversification in terms of sales. * Therefore, the astronomical increase in sales in November 2016 cannot be justified by normal market forces. * As noted above, the sale booked in the first 8 days of November 2016 is disproportionately high when compared to the same time period last year. Even from the figures submitted by the assessee, it can be seen that an 1832% year on year growth is beyond human probability in the case of the assessee. It is pertinent, that such growth does not stand the test of human probability * In fact, even taking into account the trend growth rate of cash sales and yearly growth in the cash sales, the alleged cash sales of the first 8 days of November 2016 is highly disproportionate. * Assessing officer is of the opinion that the cash sales in any business follows a larger trend in the year with minor variations. In this case, the average of 8 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit during demonetization period. If demonetization would not have happened, this income would not have come in the eyes of the department. By showing such inflated cash sales in a short span, the assessee firm tried to bring his income from unexplained sources into his books of account. 6.2 The quantum of cash sales of entire FY 2016-17 is suspect. Even the segregated stock and purchase details of traded and manufactured items have not been provided by the assessee firm. 6.3 Yet, even if the submitted sale figures are taken as genuine, then on an average, Rs 78,92,257/- is coming as the average 8 day sale of the month. This figure is arrived at by multiplying the total sales in a month by 8/30 i.e average sale of 8 days of each month in FY 2016-17 is taken into account. This does not include the month of November 2016. This method also gives the benefit of increased turnover in the subsequent months to the assessee. A premium of 30 percent can be allowed to the assessee on this amount to account for any human, unforeseen factors and circumstances beyond the market fundamentals. A sale of the period pertaining to 01.11.2016 to 08.11.2016 should be a maximum of Rs. 1,02,59,935/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke notice of the fact that increase in turnover was genuine due to the introduction of products manufactured and sold by the assessee during the year. The ld. AR submitted that the ld. AO has failed to appreciate that the increased sales between November 1 to November 8 were genuine as the sales were deposited in the following day after the sales. The ld. AR pointed out that the AO has noted in the assessment order that a sum of Rs.2,26,50,000/- stood deposited in the bank by 08.11.2016 and that the further deposits between 09.11.2016 and 30.11.2016 were much lower at Rs.1,07,00,000/-. Thereafter, there was no ground or plausible reason to believe that the cash deposits in bank were out of concocted sales. It was pointed out that cash sales and consequent higher cash deposited in the bank had started much before 8 PM on 8th November. It was also submitted that having rejected the books of account, the ld. AO has relied the increase of sales to invoke the provisions of section 68 of the Act. 15. On the other hand, the ld. DR has heavily relied the orders of the ld. tax authorities below and it was submitted that the nature of manufacturing and trading business of the assessee is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee had purchased raw tobacco from M/s Krishiv Tobacco Co. and Siraj Ahmad Sartaj Ahmad during the relevant previous year. 19. Further at pages 279 to 281 is the copy of reply to the show cause notice dated 25.12.2019 and therein the assessee specifically pleaded that all the stock details have been produced for verification earlier. It was submitted that the GP rate was as high as 46.2% in tobacco manufacturing and in trading of perfumes it was only 19%. The assessee had submitted that the purchase and sale of the assessee are fully vouched and open to verification. The books of account are maintained on day-to-day basis along with the details of daily stock position is available and is also open to verification. Accordingly, the assessee explained the fall in GP rate submitting that as trading business has increased which had lower GP rate, the overall GP rate also reduced. 20. The aforesaid discussion on the basis of evidences which were there before the Ld. AO, firmly establishes that as alleged by the ld. AO that the assessee has not been able to substantiate his purchases and stock is not based on any specific deficiency or inaccuracy found in the evidences file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited books of account. So much so that the assessee's justification for the overall fall in GP rate by providing segment wise trading result for manufacturing and trading activity was accepted. The ld. AO has failed to appreciate that in demonetization period there was every possibility of increase in sales as the assessee was a manufacturer and dealer of products which have high consumption, through may be the most exhaustive retailers. There was every possibility that retailers dealing with the nature of products, the assessee was manufacturing and trading, may have increased their own stocks and without making any effort to examine and verify the sales as reported to identifiable parties the ld. AO has considered the sales to be suspicious. 25. In any case, the rejection of books of account only qua a particular entry of cash deposits during the demonetization period is not justified while the other components of trading results and profit margins as reported have been accepted. There was inherent arbitrariness and adhocism in the conclusion of ld. AO by arriving at a figure of Rs. 1,02,59,935 as possible genuine cash sales out of total cash sales of Rs. 3,23,51,657/- during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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